The Differences Between Public and Private Procurement

The Differences Between Public and Private Procurement

The Differences Between Public and Private ProcurementRyan White2018-11-07T13:56:16+00:00

Alongside the public approach, there exists a means of obtaining goods and services which gives privately-run organisations the flexibility to meet their internal and external needs. Compared to public organisations, these companies exist largely to make a profit, and though there are similarities in their respective processes, the differences are noticeable and distinct.

We’ve already touched on the process of public procurement itself, including tips and advice, and the potential impact of Brexit. But how exactly does the approach vary in the public and private sectors?

The Differences in Funding

Similarly, if a government department decides to reduce funding to a certain area of the public sector then things can change overnight, which puts undue pressure on procurement teams in a short amount of time. Likewise, if the disbursement of funds is delayed, then public companies have to suspend activities related to procurement, which can negatively impact both them and their suppliers. With private organisations, this is much less likely to happen due to the streamlined nature of their own funding processes.

Many of the differences between public and private procurement lie in the differing methods of funding. For one, private companies can easily transfer money from one department to another if business conditions end up changing, a flexibility that’s not afforded by government budgets. In the event that prices increase, or another supplier reduces prices, public organisations face a much longer process to change their budgets.

Regulations and Legislation

Additionally, wider regulations enforced by bodies such as The World Trade Organisation can come into play too, which can further tighten the restrictions on executing public procurement. While the private sector is still subject to some degree of constraint, broadly speaking there is much more freedom from legislation in comparison.

For the vast majority of the world, public procurement is defined and constrained by some form of legislation, whether at the local, regional, national or international level, or a combination of these.

Finding Suppliers

The institutional policies that private companies operate under are tailored in a way to optimise meeting their business goals. This means they can source suppliers quickly and enter into contracts with them without the need for a bidding process.

Opposing Interests and Motivations

Since private organisations are more profit-minded and focus largely on returns for company owners or shareholders, their procurement activities stay confidential. In this competitive business environment, sharing information on saving money would be a somewhat bad idea.

This isn’t the case with public companies, who are required to assure that public money is being spent wisely and transparently. As such, they must spend more money conducting regular internal audits in order to maintain regulatory compliance, whilst also sharing procurement information, such as reliable services, with others in the same industry.

Compared to private businesses, who constantly reassess their methods to increase margins, public organisations are required to carry out procedures that will reduce expenditure over time.

Additionally, the public sector tends to have more complex motivations and objectives. Their procurement usually addresses issues beyond value for money or basic supply. There’s an inherent “social value” in public procurement thanks to UK legislation; policy goals that supper smaller firms, improve employment or education, or foster equality are commonly weaved into procurement’s outcomes. While private sector firms can focus on these areas too, it’s largely uncommon to find them dedicating themselves to these wider issues in the same way.

Differences in Management Style

The supply chain of procurement varies when filtered through differing management styles. In public sector management, which tends to be heavy on procedure and bureaucracy, procurement is less efficient when compared with the private sector. In this sector, the procurement manager answers to the CEO and a board of directors who then have the final say on what choices should be made. Not so in the public sector, where a legislative body, sometimes numbering in the hundreds, is responsible for overseeing the process of procurement.

As a result, there is less transparency in the private sector, but the public sector is still bound in certain situations because iron-clad legal regulations prevent them from making large changes.

The Importance of Value

The objectives of both private and public procurement are similar in that they both look to get the most value for money in all their activities. They are motivated by buying goods and services at the right price, and often engage in cost-reduction negotiations with suppliers. Additionally, both public and private organisations serve the public, though in different ways. The former does this through the provision of free or low-cost services, while the latter does so by selling products and services at higher rates based on competition, which often improves their own services and increases business as a result.

The Effect of Public Sector Stakeholders

Public sector companies, by their nature, have an inherent interest from the public. The larger the sector, the more inclination of knowing what is being bought and how the supplier is performing becomes part and parcel of the process. Since the public sector involves everything from rail transport, social care, employment, waste disposal and healthcare, the interest of the public increases accordingly. Though there will still be interest from the public as it relates to the private sector, it isn’t anywhere on the level of the public sector.